Thomas Piketty's "Sensational" New Book

Tyler Durden's picture

Submitted by Hunter Lewis via The Mises Economic blog,

This 42 year economist from French academe has written a hot new book: Capital in the Twenty-First Century. The US edition has been published by Harvard University Press and, remarkably, is leading the best seller list, the first time that a Harvard book has done so. A recent review describes Piketty as the man “who exposed capitalism’s fatal flaw.”

So what is this flaw? Supposedly under capitalism the rich get steadily richer in relation to everyone else; inequality gets worse and worse. It is all baked into the cake, unavoidable.

To support this, Piketty offers some dubious and unsupported financial logic, but also what he calls “a spectacular graph” of historical data. What does the graph actually show?

The amount of U.S. income controlled by the top 10% of earners starts at about 40% in 1910, rises to about 50% before the Crash of 1929, falls thereafter, returns to about 40% in 1995, and thereafter again rises to about 50% before falling somewhat after the Crash of 2008.

Let’s think about what this really means. Relative income of the top 10% did not rise inexorably over this period. Instead it peaked at two times: just before the great crashes of 1929 and 2008. In other words, inequality rose during the great economic bubble eras and fell thereafter.

And what caused and characterized these bubble eras? They were principally caused by the U.S. Federal Reserve and other central banks creating far too much new money and debt. They were characterized by an explosion of crony capitalism as some rich people exploited all the new money, both on Wall Street and through connections with the government in Washington.

We can learn a great deal about crony capitalism by studying the period between the end of WWI and the Great Depression and also the last twenty years, but we won’t learn much about capitalism. Crony capitalism is the opposite of capitalism. It is a perversion of markets, not the result of free prices and free markets.

One can see why the White House likes Piketty. He supports their narrative that government is the cure for inequality when in reality government has been the principal cause of growing inequality.

The White House and IMF also love Piketty’s proposal, not only for high income taxes, but also for substantial wealth taxes. The IMF in particular has been beating a drum for wealth taxes as a way to restore government finances around the world and also reduce economic inequality.

Expect to hear more and more about wealth taxes. Expect to hear that they will be a “one time” event that won’t be repeated, but that will actually help economic growth by reducing economic inequality.

This is all complete nonsense. Economic growth is produced when a society saves money and invests the savings wisely. It is not quantity of investment that matters most, but quality. Government is capable neither of saving nor investing, much less investing wisely.

Nor should anyone imagine that a wealth tax program would be a “one time” event. No tax is ever a one time event. Once established, it would not only persist; it would steadily grow over the years.

Piketty should also ask himself a question. What will happen when investors have to liquidate their stocks, bonds, real estate, or other assets in order to pay the wealth tax? How will markets absorb all the selling? Who will be the buyers? And how will it help economic growth for markets and asset values to collapse under the selling pressure?

In 1936, a dense, difficult-to-read academic book appeared that seemed to tell politicians they could do exactly what they wanted to do. This was Keynes’s General Theory. Piketty’s book serves the same purpose in 2014, and serves the same short-sighted, destructive policies.

If the Obama White House, the IMF, and people like Piketty would just let the economy alone, it could recover. As it is, they keep inventing new ways to destroy it.

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ILLILLILLI's picture

Well, damn! Just when we finished up on our new line of guillotines...

Spigot's picture

Who would have thought that a French trained thinker would love the notion of government being the answer to "wealth inequity". How shocking!

puckles's picture

Aside from that, Picketty is describing an effect, which he describes as deriving from one cause, which is ludicrous in and of itself, even if we actually did have a semblance of capitalism left in the West. Western-and indeed, virtually any modern-society is far too big and diverse to be captured by a single economic platform for any length of time in the modern era, and thereby show an effect.

There is, however, another far more plausible explanation, one that spans centuries, races, and societies. Essentially, if your  xx-grandpapa made it fairly big way back when, and married the daughter of someone similar (sound familiar?), your descendants will ascend, provided that they keep on doing the same.  After a number of generations, the effect appears relatively unassailable, although there is a (very slight) reversion to the mean--but from a truly ridiculously high level.

It has just been given a thorough study in Gregory Clark's The Son Also Rises  (from Amazon): 

The Son Also Rises: Surnames and the History of Social Mobility (The Princeton Economic History of the Western... by Gregory Clark (Feb 23, 2014)

Basically, if you ain't got the genes, you can fuhgeddabouddit...And no program whatseover will fix it.  He argues, in many ways much like Picketty, alas, for a negative income tax, accordingly.  I would argue that gene therapy might in the end have some effect...but it might not be long lasting.


whotookmyalias's picture

Well, any douche can publish a book. But it takes a special douche to think that a corrupt crony government is the solution to a problem caused by a corrupt crony government and a corrupt crony central bank system.

N2OJoe's picture

This is the kind of book you publish when you hope to head the IMF, FED, ECB some day.

myptofvu's picture

Just substitute the word 1% with the word Jew and you got yourself a case of full blown plagiarism.

SAT 800's picture

Yes, isn't it. Let's just call it Fraudulent Crap, and move on.

TheReplacement's picture

Time for everyone with an Amazon account to head on over and leave a review of that book.  Put some sunlight on that festering pustule.

NoDebt's picture

"Absolute power is a hell of a drug"

Paraphrasing Rick James.

Luckhasit's picture

Absolute power and cocaine go hand and hand.  

Anusocracy's picture

Absolute power and absolutely no conscience seem to be the norm.

Prairie Dog's picture

If Piketty read Zero Hedge, he'd be smarter. This is where the smart people hang out!

TheReplacement's picture

Anyone who is a professional economist for 42 years and isn't on his own island with a harem of honeys is obviously not very good at it.

Aussiekiwi's picture

bugger, missed being first again.

fonzannoon's picture

This dude needs to connect his two thoughts and realize that...

"If the Obama White House, the IMF, and people like Piketty would just let the economy alone..."

Interest rates would rise

leading to

"investors have to liquidate their stocks, bonds, real estate, or other assets"

and that is why his ridiculous "it would recover" conclusion is absurd. It's extend and pretend from here till it's all over, one way or the other.

 

 

 

 

Grande Tetons's picture

Amen! 

That yield curve is not going horizontal by accident. 

fonzannoon's picture

once rates skyrocket and the global equity and credit markets implode leads to vanishing capital everywhere and of course the failure of TBTF banks and their depositors leads to global currency failures leads to world war as well as civil war, naked americans on meth attacking each other for a tic tac leads to the big die off of about 6 billion people, give or take a few billion......we will recover, learn how to make fire, reinvent the wheel and indoor plumbing, and culminate with fractional reserve banking and then we can start the clock ticking until rates skyrocket again. That is the new economic cycle and the recovery this author is talking about

Grande Tetons's picture

You strike me as a glass is half empty kinda guy. 

fonzannoon's picture

I admit I've been in a raw mood lately.

Grande Tetons's picture

Making sense of this shit show will do that to a guy. That, or spending to much time with the in laws. 

seek's picture

It's hard not to be in a mood these days, Fonz.

CrashisOptimistic's picture

This is the ZH great reset narrative.

Sorry.  Nope.

When all gets smashed and you have 1 billion people left, and they remember they used to drive tractors to grow food, but now there's no available oil because 1 billion isn't enough to get to that really difficult oil anymore.

And never will be, because without those tractors there won't be enough food to grow the population.

Then time passes and natural disasters start to whittle down that 1 billion, until . . .

zero.

How's that for half empty.

fonzannoon's picture

I can always count on you to make me feel like I am full of unbridled enthusiasm.

NoDebt's picture

My kids are asleep now.  Should I just go smother them with a pillow or like what do you suggest exactly?

 

pmbug's picture

Time to begin TEOTWAWKI training.  Have they seen The Road Warrior yet?

Matt's picture

You skipped the part where, due to lack of oil to power the diesel generators, the spent fuel ponds all boil dry and go critical.

Even then, do you really think the end result is zero population?

Stockmonger's picture

Fuck you Bernanke and Krugman for causing the EXTINCTION OF THE HUMAN RACE!

Serenity Now's picture

Good grief, Crash, he did say six billion people are going to die.  Give him a break.  LOL.

;)

Renewable Life's picture

George Carlin had me at hello with his schtick once that started with "humans are like cockroaches"...........

If you think a billion humans couldn't figure out how to "get to the oil" left on this planet, if they knew it lead to mass consumption and privatized prosperity for those that successed in doing so, your stark raving mad son!!!!

Not only would they get to the oil, they'd streamline the process in 5 years and have the satellites back up and reruns of "dancing with the stars" pumping to every one of the two billion smartphones they would turn back on, in a flash!!!

Human nature is veracious when unbridled, the problem is, we have "breed" 4-5 billion, miss-educated, entitled, confused, slacker humans into our current system on this planet, and forgot who we are!!!

Greenskeeper_Carl's picture

don't ever let anyone accuse you of being an optimist, fonz...

fonzannoon's picture

there truly is no optomism or pessisism. just realism. those who wear a smile for an umbrella get their ass soaking wet.

Serenity Now's picture

That's the spirit!  LOL.  :)

snr-moment's picture

True, but you'll have income equality again. That's all that matters.

Zirpedge's picture

Thank you, we need more regulations not less. (awarding you my first up vote)

A well regulated market is for the public good.

Greenskeeper_Carl's picture

"if there i ever a question of rather or not you live in a police state, ask yourself if those who are charged with enforcing the laws are able to break said laws without consequence"

paraprashed from someone much smarter than me

Big Brother's picture

Post hoc ergo propter hoc fallacy much?

Shizzmoney's picture

RE

If the Obama White House, the IMF, and people like Piketty would just let the economy alone, it could recover. As it is, they keep inventing new ways to destroy it.

These folks did leave the economy alone....by letting the fraudster bankers continue to milk America and the Western World for every last nickle.  Why do you think the DOW is currently at infinity?  Because taxes went up on rich people (where they actually went up on middle and lower class people!)?  No, it's because the Fed is printing money to banks at 0%, while HFT manipulates via extend and pretend every single asset that they feel is important for looks and their friends, as well as hedge funds/corporations continuing to circumvent democracy in EVERY corner of the world.

In the end, this has NOTHING to do with tax rates.  The tax rates and the inequality of it is a result of an immoral, corrupt, disgusting, and ass backwards system.  And anyone who currently defends it by calling this current "market" a "free" one is either a) dumb, b) deaf, c) blind, or d) bought off.

What will happen when investors have to liquidate their stocks, bonds, real estate, or other assets in order to pay the wealth tax?

This "tax" will never happen because a) the owners of the politicians have paid GOOD money to ensure that it never happens (and even if it does, they'll just do what the Russian Oligarchs did in Cyprus: BTC their assets and leave) and b) thankfully for us, IMO, the "market" will completely liquidate at some point.  Every single dollar in "wealth" thee assholes own is going to dissapear in plumes of smoke.  AND WE SHOULD ALL EMBRACE IT. 


Sean7k's picture

If eveyone has their capital/land/wealth taxed it will go to pay the debt, yes? Now, WHO OWNS THE DEBT? Piketty is a moron's moron. You would concentrate everyone's wealth into the hands of the holders of the debt- Bankers and the extreme wealthy. This just a huge wealth transfer and just because the government will do the collecting doesn't mean we will share in the winnings. 

Worse, there will be room to borrow moar!

Humans are terminally stupid.

Matt's picture

Are the wealthy really the largest holders of government debts, or is it social security, pensions, and their international equivelents?

Sean7k's picture

Central banks are ALL private corporations, as are private banks. All those treasuries belong to them or China, Russia, etc. The FED holds over 19 trillion in debt instuments, which does not count our 17 trillion dollar debt. Now, think globally. 

trader1's picture

if govt. nationalizes the banks and/or buys out the debt from the extreme wealthy, then does this not become the people's winnings?

we the people decide what the govt. does, right?

 

Sean7k's picture

You really think we the peope decide anything? How quaint. The IMF plan calls for a wealth tax to pay down debt to "manageable levels" (30-40% of GDP). So, farms, apartments, rentals, homes, business property and capital, etc. Get the picture? Now, do you really think the wealthiest people will not hide their money in protected places? 

trader1's picture

does it matter what i think?

or does it matter what the critical mass thinks?  

critical mass seems fine with the present situation though...[nsfw]

Liberty2012's picture

Shizzmoney,

Taxes are a fundamental part of it. Taxes are a direct theft of work.

The government imposed monopoly fiat fractional reserve system is the indirect theft of work.

The elaborately ornate massive regulatory system is the method of doling out favors to some while squelching the rest.

Taxes and regulation are not inherently bad. They can be good as long as they are clear and limited. Even fractional reserve is not inherently bad. It would be okay if it was not forced and if it was clear to all what it really is. People would pay a lot more attention to how their "deposits" work.

Modern slavery involves theft of work and theft of choice. All slavery requires fear. Even slavery begins with something good: work. It's the twisting and perversion that leads to trouble.

Most people are decent and do not want slavery - it's the complex lying and misrepresentation that has resulted in so many being both slaves and slave drivers simultaneously.

Zirpedge's picture

It is true that top earners do not contribute a proportionate share of "earning". Capitol gains should be taxed proportional to all other taxes on labor.

\Also, I think land taxes should be invigorated to spur land holders to "shat or get off the pot" pardon my french. We need to foster productive use of the land and not reward holders of said property for using it inefficiently as a tax write off. Land is the commons from which all productive tax income should derived for the social good.

pods's picture

Tax on labor is slavery.

Be careful what you wish for, for you just might get it.

pods

Seasmoke's picture

French. HA HA HA. Oui. Oui. Oui.

Luckhasit's picture

What our best selling douche failed to mention is that capitalism needs/should  have checks and balances. The shit he's talkin bout is crony capitalism, see how Cuba enjoyed that shit before Castro rose to power.

Besides, when its a best seller, it means that it requires the comprehension of a ninth grader, which is where the american public's reading skills are at.

pods's picture

People are going to buy this book to put it front and center for cocktail parties so others know how smart they are.

pods